If you are a contractor who works for government officials from the U.S. Government you've almost likely dealt with FAR or the Federal Acquisition Regulation. This hefty legal document defines the rules and regulations that the Government and prime contractors are required to adhere to when working with each other.
In this article we'll dissect a particular subsection that covers a key step in any negotiations between Government and prime contractor: the documentation of the negotiations.
Since the responsibility for proper spending of Government funds is on the prime contractor and the contractor's responsibility, it's essential to be precise and thorough when capturing negotiations.
Any discrepancies might be caught in a Contract Purchasing System Review, which is also known as a CPSR. The review process is designed to ensure that the contractor that is the primary contractor is spending taxpayer funds in a way that is efficient.
In this article you'll learn how to prepare a complete documentation of negotiations that is in compliance with FAR 15.406-3, which is particularly relevant for contracting officers who are responsible for creating and submitting required paperwork to the contract file.
What should each price negotiation memorandum contain?
In total, the document discussed in this essay is referred to as the price Negotiation Memorandum, or PNM for short. As outlined in FAR 15.406-3 The PNM is composed of 11 main elements:
Section 1
The first part is quite simple and simply defines the reason for the negotiation. Negotiation's purpose can be varied in the case of negotiation of an agreement for a new contract with the basis of sole source as well as negotiation of an equitable adjustment as well as other such. They are first determined during the objective phase prior to negotiation which can be found in FAR 15.406-1.
Section 2
The section must describe the acquisition itself that could comprise of products, services, construction, or even real estate that the government aims to acquire, including all relevant identification numbers. "Identifying numbers" includes things such as the RFP (Request to Proposal) numbers that point directly to the particular proposal document to describe what the contractor will propose.
Section 3
This section must include the name, title and organization of every person who represents both the prime contractor and Government in the negotiations.
Section 4
In this section, cover the state of affairs of all contractor-related systems that are pertinent during the process of negotiation. This could include accounting, accounting, purchase and/or compensation. The section should clearly describe how these systems were related to negotiation and in what extent they were considered.
What section of the FAR deals with contract pricing?
The following two sections are sort of linked and we'll begin by examining the document in relation to. When a prime contractor makes an offer, it will typically contain an estimate on how much the job will cost i.e. a pricing proposal. If we refer back to the example of construction, the basic cost elements would be an estimate of labour and materials for a specific project. In this regard, the FAR has a distinct document intended for this use, which is known as the Certificate of Price or Cost Current Data.
In FAR 15.406-2 you can find a template of the certificate which includes the name of your company as well as lines for your name, title, signature, and the date you signed. This certification acknowledges that in your best knowing, the outline of costs you have submitted is accurate. This certificate is only valid to be submitted for prime contracts of greater than $2 million FAR 15 , which were issued on or on or after July 1, 2018. Let's review the specific guidelines that govern this document:
Section 5
This section covers instances where the certification of actual cost or pricing information wasn't required to determine reasonable contract price, even though contract signed exceeded the threshold of $2 million. FAR 15.403-1 provides examples of situations in which the certificate is not required, but some examples are:
The contracting officer will determine that the agreed-upon prices are in accordance with prices established by regulation or law
When a commercial item or commercial service is being acquired
In the event of modifying any contract or subcontract for commercial products or services
It is possible to refer to the FAR 15.403-1 for the full list of requirements, however, when your contract doesn't require a certificate of the current price or cost information, Section 5 is required to identify the specific exception that permits you to bypass the certificate , and what basis your contract falls within that exception.